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[QUOTE]Originally posted by wallymac: [QB] 7. The September 26 Form 8-K further stated that the bond had been loaded in the Euroclear system with an international security identification number of DE0006106875 and a Common Code of 012481241. 8. The sole exhibit to the September 26 Form 8-K was a press release from Conversion dated September 25 making substantively identical claims. 9. The identifying codes noted in the September 26 Form 8-K and the attached September 25, 2006 press release correspond to a €700 million bond series issued by Venezuela, not a €5 billion series. 10. On the morning of September 27, 2006, Conversion and Harris issued a press release paraphrasing and restating the same claim (“September 27 €5 Billion Venezuelan Bond Press Release”). It stated that “an additional 5 Billion Euro denominated Global Bonds on the Republic of Venezuela with a [sic] 11% annual coupon has been added to Conversion’s Asset Management Portfolio.” 11. Conversion does not own, or manage as an asset, the entire €700 million bond series issued by Venezuela corresponding the to the identifying codes listed in the September 26 Form 8-K, the September 25, 2006 press release attached to it, and the September 27 €5 Billion Venezuelan Bond Press Release. 12. In fact, there has been trading activity in the €700 million Venezuelan bond issue in question during the period Conversion claims to have owned it. 13. Also on the morning of September 27, 2006, Conversion and Harris issued a second press release, titled “Conversion Solutions Announce the Completion of the Banking Platform for Our Global, Sovereign and Institutional Investors” (“September 27 Banking Platform Press Release”). 14. The press release stated that Conversion had “obtained contracts from . . . Deutche [sic] Bank, ABN Amro Bank, Dresdner Bank and Kommerce [sic] Bank” and that “the mentioned banks will be the foundation for our projected funding platform.” 15. The September 27 Banking Platform Press Release contained material misstatements of fact, or at least was misleading. On information and belief, Deutsche Bank does not have any contract with Conversion, with the possible exception of an ordinary bank account relationship. 16. On September 29, 2006, Conversion filed an amended current report under Form 8-K/A (“September 29 Form 8-K/A”) with the Commission. Audited financial statements for the period ended June 30, 2006 were annexed to the September 29 Form 8-K/A. 17. In the financial statements, Conversion listed assets including a long- term investment in bonds valued at $500 million. Note 12 to the financial statements explained that, on March 15, 2006, Conversion “acquired full ownership of Global Bonds issued through the Republic of Venezuela with an issuance date of July 31, 1998 and a maturity date of August 15, 2018. The principal amount of the bonds is $500,000,000 USD with a fixed interest rate of 13.625%, computed on a semi-annual basis.” Note 12 went on to give the Common and international security identification numbers for the bonds and stated that the bonds had been acquired on March 15, 2006. 18. Conversion’s claim to have acquired the entire series of $500 million Venezuela 13 5/8% bonds on March 15, 2006 and to have held them through June 30, 2006, is false. 19. Some, and possibly all, of the $500 million Venezuelan bond issue was owned by entities other than Conversion during the relevant time period. In fact, there has been trading activity in the $500 million Venezuelan bond issue during the period Conversion claims to have owned it. Moreover, a substantial portion of the $500 million bond issue, approximately $39 million, has been owned by corporate affiliates of FMR Co. (Fidelity Investments) during the relevant period. 20. On October 16, 2006, Conversion filed an annual report on Form 10- KSB with the Commission. 21. On October 17 and 19, 2006, Conversion filed amended annual reports on Forms 10-KSB/A with the Commission. 22. With regard to the $500 million Venezuelan bond issue, the audited financial statements attached to these forms were essentially identical to those incorporated in the September 29 Form 8-K/A discussed above. 23. Thus, Conversion’s claim to have acquired the entire series of $500 million Venezuela 13 5/8% bonds on March 15, 2006 and held them through June 30, 2006, was repeated in the October 16 Form 10-KSB and the October 17 and 19 Forms 10-KSB/A. 24. Trading activity in Conversion’s stock increased dramatically after the two September 27 press releases were issued. 25. On Tuesday, September 26, Conversion’s stock closed at a price of $1.01 per share on a volume of 498,303 shares traded. 26. On September 27, the stock closed at $1.75 per share on a volume of 4,932,180 shares, an increase of over 73% in price and almost 890% in trading volume. 27. The effect of the fraudulent releases continued into Thursday, September 28, when Conversion’s stock closed at $3.02 per share on a volume of 14,037,728 shares traded. The price and volume remained above the September 26 levels through the date of the Complaint, October 24, 2006. 28. As described above, Conversion and Harris, in connection with the purchase or sale of securities, directly or indirectly employed devices, schemes, or artifices to defraud; made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in acts, practices, or courses of business which operated as a fraud or deceit. 29. Conversion and Harris knowingly, intentionally and/or recklessly engaged in the conduct described above. 30. While engaging in the above courses of conduct, Conversion and Harris, directly or indirectly, made use of the mails, or means or instruments of transportation or communication in interstate commerce, or means or instrumentalities of interstate commerce. 31. By reason of the foregoing, Conversion and Harris violated or are about to violate, and unless restrained and enjoined, will continue to violate Section 10(b) the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. 32. Defendant Conversion, from September through October 19, 2006 violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-11 thereunder, by filing current and periodic reports (specifically, its September 26 and 29, 2006 Forms 8-K and 8-K/A, its October 16, 2006 Form 10-KSB, and its October 17 and 19, 2006 Forms 10-KSB/A) which: 1) were materially misleading, or 2) which failed to include such further material information as would have been necessary to make the statements not misleading. 33. Defendant Harris, from September 2006 through October 19, 2006, aided and abetted Conversion’s violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-11 thereunder, which occurred when Conversion filed current and periodic reports (specifically, its September 26 and 29, 2006 Forms 8-K and 8-K/A, its October 16, 2006 Form 10-KSB, and its October 17 and 19, 2006 Forms 10-KSB/A) which: 1) were materially misleading; or 2) which failed to include such further material information as would have been necessary to make the statements not misleading. Through the conduct described in the above paragraphs, Harris knowingly substantially assisted Conversion’s violations of this section and rules. 34. Defendant Harris knowingly signed certifications which were included in current and periodic reports that Conversion filed with the Commission pursuant to Section 13(a) of the Exchange Act [15 U.S.C. §§78m(a)] which contained untrue statements of material fact. 35. By reason of the foregoing, Harris violated Rule 13a-14 [17 C.F.R. § 240.13a-14]. C. VIOLATIONS 1. Harris and Conversion Committed Securities Fraud Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5] prohibit fraudulent conduct in connection with the purchase and sale of securities. To prove violations based on misrepresentations or omissions, the Commission must show that the misrepresentations or omissions were material. SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir. 1968), cert. denied sub nom., 394 U.S. 976 (1969), reh’g denied, 404 U.S. 1064 (1972). A misrepresentation or omission is material if there is a substantial likelihood that under all circumstances it would have assumed actual significance in the deliberations of a reasonable investor. Basic, Inc. v. Levinson, 485 U.S. 224 (1988); TSC Indust., Inc. v. Northway, Inc., 426 U.S. 438 (1976). The misrepresentations made by Conversion and Harris were material. Conversion and Harris have claimed falsely that Conversion has billions of dollars worth of assets. The sharp increase in the trading activity of Conversion’s stock after the September 27 press releases were issued, when it increased in price and trading volume by over 73% and almost 890% over the previous day’s closing figures, also reflects the materiality of the false and misleading information that was provided to the market. The Commission must also establish that the defendants acted with scienter to prove violations of Section 17(a)(1) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5. Aaron v. SEC, 446 U.S. 680 (1980). In the Eleventh Circuit, scienter may be shown by "severe recklessness," defined as "those highly unreasonable omissions or misrepresentations that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of misleading buyers or sellers which is either known to the defendant or is so obvious that the defendant must have been aware of it." McDonald v. Alan Bush Brokerage Co., 863 F.2d 809, 814 (11th Cir. 1989). __________________ [/QB][/QUOTE]
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